Who might need professional indemnity insurance?
Companies and individual professionals who have recently started out may be wondering what they may fall back on if they ever faced a legal case in connection with their work. For example, a client is typically more than entitled to take legal action if they feel you have done a poor job and perhaps lost them money because of a mistake. Such a legal action may need defending, which typically means hiring expensive legal help and possibly paying compensation if it is awarded against you. However, a straightforward professional indemnity insurance policy may protect against this risk.
Typically it covers the policyholder against allegations that they have made a mistake, omission, or acted negligently in their work.
For example an architect may normally be covered on a policy if they provided a set of drawings to a client who put them into practice but later found there was an error which needed correcting, costing thousands of pounds.
A graphic designer may also be covered in the event they produce material which is in some way defamatory and results in a legal case, and a management consultant may get protection on a policy if they provide advice which later turns out to be erroneous and costs a client money.
Typically it also protects against legal claims that you have breached someone’s confidence or copyright, that you have acted dishonestly, or that you have simply lost or damaged data or documents which belong to a client.
It works by paying your legal defence costs, which may run into hundreds of thousands of pounds or more, and compensation costs, if awarded against you, which in some circumstances may save the company from going bankrupt.
Professional indemnity insurance also typically protects the policyholder throughout the duration of a court case, no matter how far it gets through the courts system, provided the cost of the defence and compensation stays within an agreed policy limit, defined when the insurance is bought.
In exchange the policyholder pays a regular premium, which may be linked to their qualifications, type of business, and the clients they deal with, among other conditions.
Professional indemnity insurance may even be tailored to provide what is known as retroactive cover, supplying protection for claims which arrive in future but which date back to something which happened before the cover was even bought. This is provided the policyholder was unaware that a legal action was imminent.